Dexus Weathers Vacancy Storm to Post $443m Profit

Australia’s biggest landlord is shifting focus in the face of ongoing depression in the office leasing market.

In its half year results report Dexus chief executive Darren Steinberg signalled a corporate shake up of the $9.5 billion ASX-listed company was on the cards, subject to security holder approval.

“We will look to make changes to simplify the corporate structure of the group,” Steinberg said.

The proposed structural changes will be fleshed out in an explanatory memorandum in 2021, but will reportedly provide flexibility to manage the balance sheet and accelerate Dexus' strategy to grow the funds management arm of the business by rationalising the structure.

The office and industrial landlord posted a modest $442.9 million net profit for the first half of FY21, 55 per cent down on the previous corresponding period, after a softer net revaluations gain than this time last year.

“The pandemic has reinforced the importance of having a diversified business model and strategy that can deliver through the cycle, demonstrated by our strong cash flow and resilient asset values,” Steinberg said.

“Our agile and high-performing workforce will take advantage of the changed market conditions by focusing on strategic initiatives that will help us unlock the relative value of our business and strengthen the platform for the future.”

The company has been busy offloading property in the past six months, while the demand for office space has plummeted. Figures released by the Property Council of Australia showed that nationally the office market vacancy rate over the past six months had increased from 9.6 per cent to 11.7 per cent, the highest since January 1997. But Dexus reports its “office footprint is substantially unchanged”.

Dexus sold a half-stake in Sydney’s Grosvenor Place for $925 million in November, it sold out of 45 Clarence St, and cut a $273 million deal to divest of 60 Miller St, North Sydney.

“We continued to selectively recycle assets, receiving the proceeds from the sale of 45 Clarence St, Sydney in late December 2020,” Dexus chief financial officer Alison Harrop said.

Moody’s Investors Service vice president Saranga Ranasinghe said Dexus’ results for the first half of FY21 were “credit neutral” despite the challenging period, underpinned by it’s diversified asset portfolio.

“However, the office portfolio will face tough conditions as tenants re-evaluate their space needs and delay decision-making,” Ranasinghe said.

“While nominal office rents remain unchanged, increasing incentives will squeeze effective rents over the next 12-18 months. This is partially offset by the strong fundamentals of Dexus’ industrial property portfolio.”

Dexus recorded a 6.7 per cent increase in its distribution of 28.8 cents per security, primarily driven by trading profits. Rent collections were at 96 per cent to the end of December.